The Backyard Economy: California

June 12, 2008

By ALICE GOMSTYN ABC NEWS Business Unit

California is one of the states hit hardest by the current housing downturn. In the first quarter of this year the state saw 169,831 foreclosure filings, the most in the country according to the research firm RealtyTrac.

Cynthia Kroll, the senior regional economist for the Fisher Center for Real Estate and Urban Economics at the University of California at Berkeley, said communities in Southern California and the state's Central Valley were among those suffering the most from the housing slump.

"There was a huge amount of building so that their economies had been boosted by that building activity," she said. "A lot of lower-income households were buying homes with subprime loans and so the foreclosure rates are quite high out there. Building has just ground to a halt."

California's financial sector has also been hurt by the housing crisis, she said.

Meanwhile, despite the weak dollar, California's export trade has lagged behind that of the rest of the country, according to Moody's Economy.com. Since 2003, U.S. exports have risen 55 percent, while in California the increase was just 42 percent.

It's not all bad news for the Golden State, though. While the state's technology sector is not growing as fast as it did during the dot-com bubble days, it is growing.

"There's continued innovation around the Internet and communications, and then there's also a lot of interest right now in clean energy and green products," Kroll said.

Supporting industries such as architecture, engineering and legal services also benefit from the tech sector's expansion, she said.

Tourism continues to be a boon for the state. Last year, direct travel spending in California totaled $96.6 billion, up 3.6 percent from 2006, according to the California Travel and Tourism Commission. International travel accounted for 17 percent of the spending, the commission reported.

"It's a destination for international tourism, and because of the falling dollar it's been very popular for that reason," Kroll said. "Locally, when the economy is not doing well, while nationwide tourism may drop, often our smaller regional tourism areas get a boost from people within the state or neighboring states who no longer want to go to Europe, so they're doing their traveling in California."